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Three domestic mobile device makers—Micromax Informatics Ltd, Karbonn Mobile India Pvt. Ltd and Celkon Impex Pvt. Ltd—are coming together to set up the country’s first mobile phone manufacturing hub at Tirupati in southern Andhra Pradesh, giving a fillip to the Union government’s Make in India initiative.

The coming together of the three handset makers at a single place is expected to trigger the creation of a mobile device ecosystem as component manufacturers set up shop in the country. Most phone makers now assemble phones using components imported from China and Southeast Asian countries.

Prime Minister Narendra Modi’s government is encouraging electronic hardware companies to manufacture locally in an attempt to reduce the country’s electronics import bill.

In an attempt to create an ecosystem for electronic devices in the state, the Andhra Pradesh government has agreed to give value-added tax (VAT) exemption to component makers for 10 years. This is in addition to the 10-year VAT exemption promised to the three firms.

“Manufacturers, if they come one by one, there will be an ecosystem," chief minister N. Chandrababu Naidu said in Vijayawada prior to signing in-principle agreements with the three firms. “We want to create this ecosystem. If you create the ecosystem, India will move very fast," he added.

Celkon, the fifth biggest phone maker in the country, will initially work on semi-knocked down (SKD) mobile units by importing components from China, but over time expects to work on completely knocked down mobile units using components made domestically.

Y. Guru, chairman of Hyderabad-based Celkon, said his company is in the process of signing joint venture agreements with Chinese firms to make components locally. Rajesh Agarwal, co-founder of Micromax, said his firm would make products from its entire portfolio—mobile devices, tablets, LED televisions and computer monitors—at the Tirupati facility.

The state government has set aside 60 acres of land near Tirupati airport for the three units. It has identified additional land near the airport to accommodate units of other handset and component makers, Kartikeya Misra, director of industries, Andhra Pradesh, said. The state government is talking to other handset makers such as Intex Technologies (India) Ltd and Lava International Ltd to set up a base in the state, he said.

The three domestic phone makers will be located not far from an assembly unit of Foxconn, which is making phones for Xiaomi Corp. at Sri City, also in Chittoor district.

Guru and Agarwal did not disclose the scale of investment or capacities at their proposed facilities, but Misra said the projects fall under the state’s mega projects category—meaning they entail an investment of more than 200 crore or employ 1,500-2,000 people.

Guru said the company plans to invest 250 crore over the next three years at Celkon’s Hyderabad and Tirupati facilities. Agarwal said Micromax would invest “whatever it takes" at the Tirupati facility.

“By virtue of our scale of operation, I am sure when we come here we will invest whatever it takes to be the best," said Agarwal, promoter of India’s second biggest phone brand. Micromax currently operates units in Uttarakhand and is investing 80 crore in a unit at Hyderabad.

In addition to the VAT exemption, the Andhra Pradesh government is giving a logistics cost subsidy, and a 5% investment subsidy for the three handset makers. The facilities will be located about 120km from the Chennai airport.

“From what I have heard they got a very sweet deal with the government. This could very well be the start of something new," said Sanchit Vir Gogia, chief analyst and group CEO, Greyhound Research,

“This kind of coming together is a very difficult task for a lot of organizations. When such big brands come together, second degree and third degree suppliers will start coming together because they will realize ultimately that manufacturing lines are the same," he added.

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